Dollar under pressure

Ongoing concern about the outlook for the US economy, amid declining consumer and business confidence, contributed to a further fall in bond yields, while stocks remained on the back foot and the dollar weakened. The euro rose to a high of about $1.0525 against the US currency during yesterday’s session but has retreated to $1.05 this morning, while sterling got up to best levels of the day of almost $1.2680 before easing back to $1.2650. EURGBP remains tightly rangebound as it continues to hover in and around the £0.83 level.

The market has added to Fed rate cut bets – almost 60bps is now priced in for this year – which has contributed to a further decline in US bond yields, with 2-year and 10-year yields falling by the best part of 10bps (the latter now down to around 4.30%, bringing the cumulative decline from January’s highs to more than 50bps). UK and German yields followed US yields a bit of the way lower, declining by around 6bps and 4bps in the 10-year area. In equity markets, the Nasdaq was off more than 1% again while the S&P 500 shed another half a percent, though the futures market points to some respite at the open later today.

Consumer confidence in the US fell sharply this February according to the latest reading from the Conference, now lower for a third straight month, and follows a decline in business optimism reported in last Friday’s Purchasing Managers survey. Concerns about tariffs are to the fore, with consumers’ expectations for inflation in the period ahead rising sharply as well this month.

In a speech yesterday, ECB member Schnabel said, give the 125bps cut in interest rates to date, the “degree of (monetary) policy restraint has declined appreciably, to a point where we can no longer say with confidence that our policy is restrictive”, hence the central bank needs to “proceed cautiously” regarding further rate reductions. The market for its part continues to expect the ECB to lower rates by at least another 75bps this year, with a 25bps cut priced for next month.

Looking to the day ahead, it is very quiet in terms of economic data with new home sales in the US the only release of any note, while a small s